Special Report: Tax Saving Tips for the Self-Employed

Confidential -- Special Report: Tax Saving Tips for the Self-Employed
♦ Did you ever consider that every time your paycheck is printed a cash register automatically rings down at the IRS and someone reaches in and takes out a chunk of your money. If you're tired of living on what's left of your paycheck read this. 
♦ Small business people are not getting the help and tax planning information they should be receiving and therefore are losing literally billions of dollars of deductions. Many small business people view tax planning as complicated when in fact with the right tax knowledge and the right documentation most strategies are surprisingly simple to do. Every accountant you've ever used probably has you jumping through all kinds of hoops so that you're not paying every April 15th. Only those who set themselves up right can take advantage of the tax laws. What you need to understand is we have two tax systems in this country. One for employees, and one for business owners. Your business (home-based or otherwise), can provide you with more deductions than the superrich. Isn't keeping tax dollars better than a raise? Don't confuse tax savings with making a profit. The amazing thing about our tax law based on Congressional and IRS approved strategies is you merely need topursue a profit to get all the wonderful tax deductions. In fact if you have business expense that exceed your income in a year you can use that loss against any income you have such as the tax your wife would pay from her job.
♦ Congress wants the IRS to subsidize you in pursuit of your business. If you have a home-based business you can convert money you are already spending into tax deductible dollars. You can shelter some of your income. You don't have to change what you're doing, just how you document it. A personal office used in a home-based business is deductible. The same is true about your automobile, vacation and medical expenses. With the right kind of documentation, lunch with your colleague can become a business deduction. You can even get some deductions without receipts (Cohan Rule). You have to remember thousands of people have been doing this for years. The IRS has changed the rules for home based business, owners, and documentation, and importantly take it very seriously. Those who don't document their business activities will be facing a 75% civil fraud penalty as they are ushered into court. Mileage logs and many business expenses must meet five rigid criteria (Who? What? Where? When? Why?) and be recorded within 24 hours in a good diary. If you think you are too busy or if it sounds like too much work keeping all the documents, records and receipts, keeping records can help you keep money you've already earned. 
♦ By being a business owner you have other advantages such as Chamber of Commerce, networking, setting your own hours and writing your own paycheck. Plugging tax leaks can allow you to drive a new car every other year and take your family on vacation. Every business owner needs to set-up some sort of tax self-defense. The courts have ruled you can hire your children if they have reached age 14 and pay them a deductible yearly wage. If they are under 18 they are exempt from social security and federal unemployment tax. Your children can earn over $4,000 each year and not pay any income tax... The bottom line is you get a deduction for your kids' wages without having them pay any income tax or any social security tax and you keep that money in your household where it belongs. If you kids use their money to pay for college and weddings down the road aren't you getting a deduction for college and weddings? It's the same money.
♦ By using the mileage method for your business vehicle, you can conservatively claim an extra $1,500 to $2,500 of automobile deductions with the right records and diary. You can now deduct some of the medical expenses such as braces for your kids, deductibles and co-pays. Being in business is one of the last great tax reduction opportunities left to us. When you're married the way you structure your business can allow both of you to take advantage of all of the tax deductions. This all depends on proper documentation, having a good diary and operating your business like a business and not like a hobby.
♦ Make no mistake, you should have access to an accountant but don't be fooled into thinking your accountant takes care of your tax affairs for you. This is a disastrous misconception. Your accountant can only use the numbers that you give them. If you don't have the right tax knowledge and documentation by December 31st, there is nothing your accountant can do to save you. Without proper documentation you will end up in the tax deduction cemetery where IRS will pick your bones clean! A good tax diary more than pays for itself in accounting fees and time away from money making activities at an IRS audit that could have been completely avoided with a little work in a few places. Properly documenting your records can be one of the easiest thing to do. And one of the easiest things not to do. Let the tax benefits work for you. Don't ever ever quit. If you quit, then you've given IRS a definite date of when your tax savings cease, and there's no reason to give them up. The bottom line is you can never be rich unless you get your tax affairs to the legal minimum. Make the US Congress your silent partner. Don't let life be so taxing!

Source: This letter is excerpted from Gimme My Money Back! Underpaid and Overtaxed? ©1997-2000 Sanford Botkin, Michael Kenny & L. Roger Essen